Taking a break from work is exciting, and most people make many vacation plans. Employers must offer their employees a prorated vacation since most federal governments don’t encourage paid time off.
What does a prorated vacation mean, and how can you calculate it?
A prorated vacation is the number of leave days earned by an employee based on when the company hired them. Employers will not give employees hired in the mid-year their total number of leave days for a whole year, but days off based on the hours, weeks, or months they’ve worked.
Employers need the right approach to calculate a prorated vacation since it can be challenging, especially if you didn’t hire at the start of the year.
Besides, knowing how to prorate vacations is essential since you will do it every time you hire a new employee.
This article will discuss a prorated vacation and how to calculate it, so keep reading!
What is a prorated vacation?
A prorated vacation is the total number of leave days new employees are given for the rest of the year based on the time they have worked for their company. When an employee’s vacation is prorated, they’re less likely to experience burnout.
Employers must offer prorated vacation days to their workers if they hire them on any other day except the first of the year.
Many companies permit their employees to accrue time off based on their work hours. Generally, prorated vacation allows you to use all the accumulated vacation time upfront.
How do you calculate prorated hours?
Prorated hours are calculated based on the terms of employment offered by the employee. For instance, prorated hours for full-time employees differ from part-time employees.
Also, there are different methods through which employees can earn their time off, but the employer should specify them in their employee handbook.
Below are various ways through which paid vacations are accrued.
Most employers use a yearly accrual policy to give their workers several leave days at the beginning of the year. It’s easy to use this vacation policy since you deduct the leave days of your employees from their total for the year.
For instance, if you offer 20 days of vacation in a year and your employee takes 10 days off in the first four months, you will subtract those days from the total and be left with 10 paid leave days for the rest of the year.
The hourly method is the best for calculating the accrued vacation for part-time employees since their schedules are irregular.
The hourly method determines their accrued vacation by the number of hours they’ve worked.
For instance, let’s say you have a part-time employee and want to be fair to them by giving them vacation days similar to those you give your full-time employees. How do you calculate the number of days they accumulate per hour?
I’ll cover the calculation later in this article, so keep reading.
Biweekly / semimonthly / monthly
The biweekly, semimonthly, or monthly payment schedule is another option for companies to give their employees time off during every pay period. This helps keep records consistent and in line with your employee’s wages.
If you opt to use the biweekly, semi-monthly, or monthly accrual methods, you will get the accrual rates by dividing the number of vacation hours by the number of pay periods.
In other words: The number of vacation hours/number of pay periods =accrual rate.
In this case, the monthly payment schedule period is 12, the semi-monthly pay schedule period is 24, and the biweekly schedule pay period is 26.
So if you give your employers 80 hours (10 days) of annual vacation, then here is how the calculations for each method will look like:
80/26=3.08 hours, the number of vacation hours for every biweekly period an employee has worked.
80/24=3.33 vacation hours accrued by an employee in a semi-monthly period.
80/12=6.67 vacation hours accumulated by an employee for every month worked.
Calculating a part-time employee’s daily accrued vacation hours is possible, but the shifts complicate it.
How to calculate prorated vacation hours for full-time employees
Calculating vacation days for full-time employees is easy, and here are simple steps to go about it.
- Establish the number of days a particular employee has worked in a specific period.
- Divide the number by the total number of days in that period.
- Multiply it by the accrual rate for the period they worked.
If your employees work for an annual period, as most do, divide the number of days they worked by the total number of days in a year and multiply it by your company’s accrual rate.
After that, multiply the answer by the number of hours in a day.
Here is an example of the calculation of prorated hours.
If your company offers 10 days of vacation per annum and hires an employee on the 1st of May, they will have worked at the company for 244 days.
So the calculation will be: 244/365=0.668
Next, multiply the above number by the accrual days: 0.668×10=6.68.
So if the employee was hired on May 1st, their vacation days should be 6.68. To get the prorated hours, multiply 6.68 by the number of hours they work in a day.
If the employee works for eight hours in a day, then here is the calculation for prorated hours: 6.68×8=53
So the total prorated hours the full-time employee should be given are 53.
How to calculate prorated hours for part-time employees
Calculating prorated hours for part-time employees is best done based on hours rather than days.
First, divide the average number of hours your part-time workers work by 40, then multiply the number by the number of vacation days of your full-time employees.
The first step is to divide the number of your working hours by 40 (the number of working hours for a full-time employee) and then multiply that number by the number of vacation days a full-time employee is given.
For example, If you work at company A as a part-time employee and a full-time employee is given 10 days of vacation per annum, you work for 20 hours a week.
To establish your earned vacation time, divide your weekly working hours (20) by the hours a full-time employee works.
The number you get is 0.5, which you should now multiply by the number of vacation days received by a full-time employee.
Since you want to know the number of hours for a part-time employee, you must first convert the 10 days into hours, after which you get 80 hours.
Finally, multiply the 80 hours by 0.5 and get 40. So your prorated vacation hours as a part-time employee should be 40.
How to calculate prorated hours for employees hired mid-year
If you have a part-timer working 20 hours a week whom you hired on June 1st, here’s how you should calculate their prorated hours.
Divide your full-time employee’s prorated vacation hours, which is 53 per year per the above calculation, by 52 (the total number of weeks in a year).
Example: 53/52=1.019 hours per week. As a part-time employee who starts working on June 1st, your prorated vacation hours will be 1.019 per week.
The number of weeks between June 1 and December 31st is 31. So multiply 1.019 by 31 to get 31.589.
In other words, your vacation hours in a year will be 31.589.
How to calculate prorated hours for employees leaving during the year
If you want to leave your employment when the year has already started, calculate your prorated vacation from when you started working to your leaving date.
For instance, if you started working on January 1st, and left employment on June 1st, here’s how you will calculate your prorated leave.
First, determine the days you worked from January 1st to June 1st. You will get 151 days. Then divide 151 days by the total number of days in a year which is 151/365. It’s 0.414.
Multiply the number by 10(your leave days), and you’ll get 4.14.
In other words, you accrued 4.14 vacation days for the days you worked in the five months of the year.
How to calculate pay for unused PTO
If you didn’t go on a vacation and want to know how much your paycheck will be worth, here is how you calculate it.
Let’s say you earn $54,000 per year. You first start by dividing the amount by the number of weeks in a year. Here’s the calculation: 4,000/52=1,038.
So your weekly rate will be $1,038. Next, you divide the weekly rate by 5 to get the daily rate: $1.038/5=207.
In this case, your daily rate is $207, which you should multiply by the number of unused days(4.14):
In other words, $856 is the amount that will be added to your final paycheck for unused leave days.
What is the importance of prorated vacation for employees?
Prorating vacation is an excellent way to enhance your employees’ wellness and morale and ensure fairness in the workplace. Besides, your workers get a break from work to prevent burnout.
If you hire an employee in August or November, their salary should only be for the period they worked. The case is the same for paid leave days.
If you hire someone in November, you should not give them 10 days of vacation for the two months they work.
The other reason you need to prorate your employees’ vacation days is that some states consider the accrued vacation time as salaries.
If the employee resigns, the law requires you to payout their unused vacation days immediately, or you could be sued.
This law doesn’t apply to all states. In some states, employers can decide what happens if an employee resigns and how they will handle the PTO.
An important note about unlimited vacation days
Some companies find calculating and tracking vacation days difficult, so they opt to give their employees unlimited vacation days.
In this case, the employees decide when to take their vacation leave, provided the days off don’t interfere with business.
This is a good option since it cuts down the massive cost of unpaid leaves to workers who resign. Employees also get to enjoy some flexibility and freedom.
However, one disadvantage of unlimited vacation days is that the employees may overuse them by taking too many days. This will result in too much work on other employees as they try to fill the gap.
Before deciding, consider the pros and cons of unlimited vacation days for employees.
If you want to ensure all your employees take an equal amount of time consistently, I recommend setting a certain number of vacation days.
By managing paid leaves and working out the prorated vacation days of your new employees, you enhance trust and satisfaction in your company.
Additionally, you create fairness since everyone gets their deserved leave days, which is all that each employee wants.